August 04, 2016

New Report from BNY Mellon Reveals Strategies for Optimizing Collateral Value

Playbook published for using assets more efficiently

Collateral Solutions for a Changing Market

New York, August 4, 2016 – With regulation and market changes increasing the premium placed on collateral, a new report released today from BNY Mellon, a global leader in investment services and investment management, provides market participants—including broker-dealers and institutional investors—with innovative collateral management techniques that optimize asset efficiency, reduce balance sheet cost and help mitigate risk.

“Market participants need to be more efficient when financing transactions, which means they need to allocate the least expensive collateral to each trade, possess a full view of which collateral is available and which is being used, and applying efficient collateral management techniques to a variety of transactions,” said Michelle Neal, President, BNY Mellon Markets. “Simply put, optimizing collateral management means having the right assets, in the right place, at the right time.”

The report, “Collateral Solutions for a Changing Market,” finds that with broker-dealers being more selective in terms of financing, institutional investors may also find further opportunities in a peer-to-peer relationship, in which these buy-side firms are both the collateral provider and receiver. Additionally, BNY Mellon sees market participants increasing their emphasis on risk management, asset optimization and viewing collateral management holistically across the enterprise.

The move to the tri-party model continues as a means to aggregate suitable collateral, optimize its selection and ultimate allocation. But while the use of a tri-party collateral management model was established in support of repo and securities lending, BNY Mellon sees a growing trend where collateral in a tri-party model is used to cover a range of exposures and obligations.

The report puts forth a strategic framework for market participants to consider including the use of collateral pledge structures, structured notes and the cross-border allocation of Japanese Government Bonds as part of an overall strategy to optimize collateral and find efficiencies.

A further collateral management challenge analyzed in the report is managing initial margin and variation margin requirements. According to BNY Mellon, the posting and receiving of collateral is new to many institutional investor firms. Issues with data management, cash management and inventory management make “cash collateral” easier to use in current markets. These issues need to be addressed before non-cash collateral can be posted efficiently.

BNY Mellon advocates that margin segregation rules require solutions that maintain a high degree of automation while focusing on controls, risk mitigation, efficiency and transparency. The report identifies six key considerations for an effective segregation solution:

  1. Ensuring the chosen and eligible asset choices are posted to each counterparty
  2. The level of assurance for the safe return of assets in a timely and efficient manner in the event of a counterparty default
  3. The ability to move assets quickly/effectively and, in certain cases, outside of market hours
  4. The tools and channels to allow the proactive management of the assets held within a “Segregation Network” – the different segregated custody accounts required versus each counterparty
  5. Impact of scale of solution on operations, infrastructure and reporting and data management
  6. Cost of solution

“The collateral management and segregation space today is quite dynamic. These changes are putting operational pressures on firms and requiring them to take on new activities,” said Jim Malgieri, Head of Collateral Management and Segregation, BNY Mellon Markets. “There is a learning curve with the changing requirements as all market participants adapt and retool their operations to enhance their processes and create efficiencies.  BNY Mellon is partnering with its clients and offering solutions that can help.”

BNY Mellon Markets
BNY Mellon Markets is one of the company’s fastest growing businesses that helps clients access capital, financing and liquidity with a comprehensive suite of innovative solutions and services covering foreign exchange, securities finance, collateral management and segregation, capital markets, liquidity and prime brokerage services.

BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2016, BNY Mellon had $29.5 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on Follow us on Twitter @BNYMellon or visit our newsroom at for the latest company news.